Customs duties are a barrier for luxury goods in India

India

Published: 03 November, 2014

The Indian luxury market has great potential, but the barrier of high custom duties and government restrictions is an impediment for luxury brands seeking a bigger presence in the country says a spokesperson for a conglomerate of Italian high-end brands.

“Next to Brazil, India has the highest tariff barrier. There is a 38% custom duty levied on leather goods in India while in China it is 17%, Japan 11%, and no custom duty in Singapore and Hong Kong,” said Armando Branchini, Vice-Chairman of Altagamma foundation, a conglomerate of several high-end Italian companies, at the Mint Luxury conference in Mumbai.

This has forced luxury brands to subsidise their price to be in India, which, in turn, has hit their profitability, said Branchini. Moreover, although 100% foreign direct investment is allowed for a single-brand retail, the government mandates that brands source 30% of their manufacturing requirements from India and this is also a barrier, said Charlotte Keesing, Director at Walpole British Luxury. “We invest heavily into making our products, and we cannot expect to generate the same kind of product in India by making it here.” She also believes the taxation structure is complex. “There are four different taxes on luxury goods and it is very complex. While it may be good for the economy, it is a barrier for trade,” she said.

Amitabh Kant, Secretary in the Department of Industrial Policy and Promotion (DIPP), said the custom duty levied on luxury goods only makes a marginal difference. The existing customs duty is also a reflection of the inability to strike a free trade agreement with the European Union “We are negotiating (a free trade agreement) in such a way that it is a win-win for both India and EU,” said Kant.

Currently, India’s share of the luxury market accounts for 1.8 to 2% Kant believes India will emerge as one of the biggest markets for luxury products. “Over 72% of the Indian population is under 30 years old. India will drive luxury in the future as we will have more billionaires than UK in the next decade,” said Kant. The number of millionaires in the country is expected to increase four-fold over the next decade.